Comments by one of BT's top bosses have sparked fresh concerns that the telecoms giant could dominate broadband services in Britain.

The revelation that two of the telecom giant's key businesses could merge has angered rival internet service providers (ISPs) who are worried that competition in the fledging market could be damaged.

Currently BT is only allowed to offer a full broadband service via BTopenworld.

It must purchase broadband from BT in the same way other ISPs do and cannot use billing information from telephone customers to increase sales.

The regulations are designed to prevent the telecoms giant from dominating both the infrastructure and provision of broadband services and to offer a level playing field to all ISPs.

Changing nature

But BT has launched a direct broadband product, which is cheaper than BTopenworld's service and will be charged on a customer's blue telephone bill.

If BT Retail is allowed to swallow Openworld, BT will have succeeded in completely pulling the wool over Oftel's eyes

Freeserve spokesman

The new service hopes to attract one million customers by the summer of 2003.

Managing Director of BT Retail Angus Porter told the BBC News Online that if the service is a hit with consumers is could damage BTopenworld and lead to the two companies merging.

"If BT Broadband is as successful as we hope then BTopenworld will have to change its nature," he said.

Mr Porter speculated that it could even result in a merger between BTopenworld and BT Retail, with the former concentrating on offering premium, paid-for content such as music and gaming while the other just offered access.

The new service would get around the tight regulations on BT because it is an access-only product and will not offer content or e-mail.

Monopoly fears

The launch of BT Broadband has already provoked an angry reaction from other ISPs.

Porter: BTopenworld likely to change

The idea of a merger between the two separate divisions of the company has sparked fresh fury.

"If BT Retail is allowed to swallow Openworld, BT will have succeeded in completely pulling the wool over Oftel's eyes," said a spokesman for Freeserve.

"BT's game plan is to shift consumer internet services into the fixed line phone business, where it can leverage off of its super-dominant position.

"Previous regulators have prevented BT from exploiting its phone monopoly to win a share of new markets, but Oftel is now turning a blind eye," he said.

He added that such a move was likely to stifle competition in the broadband market.

Brave move

Oftel told BBC News Online that it would be monitoring the situation.

"If BT wants to restructure its company then it can and we will have to assess the regulatory implications," said an Oftel spokesman.

We thought the whole ISP model was constipated

Angus Porter, BT Retail

Jupiter Media analyst Dan Stevenson believes BT is unlikely to get away with such a move.

"If Oftel doesn't do anything about it then it will be proved to be fairly ineffectual," he said.

Mr Stevenson said he would be surprised if BTopenworld was prepared to sacrifice the money it makes from access in favour of valued-added content.

"All the money is in access at the moment. It would be a very brave move," he said.

A spokesman for BTopenworld said it would continue to make money from its narrowband internet service which has around 1.6 million customers.

"In terms of the broadband service being offered by BT Retail, we view it as opening up new opportunities. It will drive usage of broadband and, because people will just be getting a raw connection, they will be looking for additional services," he said.

Currently only a tiny percentage of BTopenworld's revenue comes from paid-for services.

"It is early days," said the spokesman.

The BT Broadband service, which will cost £27 per month, will offer users a so-called landing-page with a variety of content from other providers including BTopenworld.

The new service will make it easier for existing BT customers to swap to broadband because they will be billed for the service on their telephone bill.

Users will be able to purchase an e-mail service from BTopenworld for around £9.99 a year or choose from a range of other options including free e-mail from a variety of providers.

Radical new model

It is a radical departure from the ISP access model and the first time a provider has offered such a service anywhere in the world.

"We thought the whole ISP model was constipated," said Mr Porter.

"We are not a content company and instead we are offering the telecoms equivalent of plumbing," he said.

Mr Porter is convinced that ISPs like BTopenworld can make money out of premium services such as home security products.

BT is developing a low-cost security device that would allow broadband users to monitor their homes 24 hours a day and is also looking at using such technology to allow absent or divorced parents to communicate with their children online.